In this assessment in Part A students are asked to imagine they have been engaged by an external client to develop a report on key aspects of project risk management and how they might be used in a proposed future project in order to manage and limit risk. In Part B you are asked to conduct a capital budgeting analysis for Myer Holdings. Content and process PART A (20 marks) The report should begin with a short executive summary and conclude with several, short general recommendations. The content you include in the report should be generic in nature, rather than specifically focused on one type of project or industry/sector. The topics students are required to report on include: Project selection – How should businesses determine what projects to undertake and what ones to avoid? What tools, measures, and practices are available to project analysts? Cost management – What is the role of project cost management? Why is it important? What strategies or approaches should business adopt in order to effectively manage project costs? Funding – What funding measures or options are generally available to assist businesses to fund proposed new projects? The report should include reference to any implications associated with different funding types or models. Implementation and winding up – Are there any particular issues associated with commencing a project that businesses must consider? Why are they important? Who do they impact or affect? What happens when the project finishes? How are projects wound up? Do they just end or are there resource or infrastructure considerations? Are there environmental issues associated with the end of a project? Where possible, students should aim to include as many real-world (case-study) examples as possible to illustrate or demonstrate issues that are identified. As a minimum, students should aim to include at least one practical example or illustration for each topic identified above. Students should provide between 200-400 words per topic, together with approximately 300 words in total for the executive summary and final recommendations. PART B (20 marks) Consider the following two sources and answer the following questions. Answer each question directly. You do not need to write a lot for each question and for some you will need to use excel calculations. Submit you excel spreadsheet together with your report Source 1: Sydney Morning Herald From Sydney Morning Herald.
The once venerable Myer department store chain is now worth less, in market capitalisation, than hungry upstart, Kogan.com. Not just less, but more than 50 per cent less. Fittingly, that sounds like a Myer stocktake sale. Myer is now worth about $400 million, by market value. When it relisted on the Australian Securities Exchange in 2009, after being floated by private equity sellers, it was worth about $2.4 billion.
Source 2: Myer Yahoo Finance: https://au.finance.yahoo.com/quote/MYR.AX/
Source 3: http://www.smh.com.au/business/retail/myer-profits-slump-as-stocktake-sale-flops- shares-hit-all-time-low-20180208-p4yzsi.html a) According to the sources above does Myer currently have equity capital on issue? Why do companies raise equity capital? Why has the value of Myer’s equity capital dropped so much in 2018? (3 marks) b) Below are details about a project Myer is considering to undertake today (2018). Please answer questions i-vi with the aid of an excel spreadsheet. You also need to answer the below questions in your word file and refer to your excel spreadsheets as a supporting document. Assume all numbers are in Canadian dollars. Assume today is April 2018 and Myer is considering changing its strategy and opening a new store in Canada. The capital expenditure involved in setting up the store is $10 million Canadian dollars and the store will have a life of 5 years. The total incremental revenues per year from the store are expected to be $5.5 million Canadian dollars starting at the end of year 1 and continuing until the end of year 5. Incremental revenues will increase by 2% per year after the first year. Costs are expected to be 40% of revenues and will be paid in Canadian dollars. A working capital outlay of $2 million Canadian dollars will be made today and will then be recovered at the end of year 5. The store will be depreciated to $7.5 million Canadian dollars book value over the 5 years and the annual depreciation expense will be $500,000 per year. Assume that at the end of year 5 the store will be sold for $9 million Canadian dollars. The tax rate Myer will be taxed at will be 40%. Assume that today and for the next five years $1 AUD will buy $1 Canadian dollars. (So the currencies are equivalent) i) Calculate the Free Cash Flows in Australian Dollars to this project. (6 marks) ii) Calculate the NPV in Australian Dollars (AUD) for the project assuming the cost of capital is 5%. (4 marks) iii) If the Canadian dollar depreciates against the Australian dollar and today and over the next five years one Canadian dollar will only buy $0.95 Australian dollars, how would the NPV (in AUD) change? How would this affect your decision? (4 marks) iv) Based on the analysis you did in questions i-iv what would your advice be to the Myer board about this project? Why? (3 marks)
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